In its full year financial report, published today (24 May), the company claims that ‘self-help’ efficiency measures, implemented to improve margins in the recycling business, have helped to increase recycling earnings to £22.7 million in 2016/17, up from £13.1 million during the previous 12 months.
Overall Pennon Group has reported that Viridor’s earnings before interest, tax, depreciation and amortization were up 18.7% to £138.3 million, despite a 1.6% drop in revenue to £793.5 million.
Total tonnages handled by the company fell marginally from 7.8 million tonnes in 2015/16 to 7.6 million tonnes in 2016/17, with the volume of waste at the company’s energy recovery facilities totalling 2.2 million, 1.7 million tonnes handled at landfill sites, and around 3.7 million tonnes of recyclable and other materials handled.
Revenue
The company had previously warned of the impact of falling recycling revenues on its business (see letsrecycle.com story), but today revealed that recycling revenue improved £5 per tonne to £90 per tonne for materials handled in 2016/17 compared to the preceding year.
Average operating costs also fell by £2 per tonne to £72 per tonne, as a result of the efficiency measures implemented by the company.
Steps taken to improve efficiency have included renegotiation of contracts to share a greater proportion of risk with customers, and a reduction of costs within the business, Pennon has reported.
However, the company added that it remains cautious of any future change in recyclate prices. It said: “We remain cautious about future recyclate price growth and are not relying on a near term recovery. We are instead focusing on ‘self-help’ measures to drive margin improvement and to look to share commodity risk/ opportunity with our clients.”
Energy recovery
Alongside an upturn in its fortune on the recycling side of the business, Pennon has also reported continued growth in its energy recovery facility portfolio. Earnings from the company’s ERFs rose to £106.9 million for the year, up from £89.7 million.
The company stated: “We are successfully establishing a significant asset base of ERFs, with eight plants now in operation. Viridor’s ERF portfolio has delivered EBITDA of £106.9 million, reflecting a c.19% increase on last year and exceeds the milestone of c.£100 million targeted in 2016/17.”
Construction of facilities at Avonmouth, Dunbar, Beddington and Glasgow is also in progress.
Landfill earnings were up by £0.2 million, the company noted, whilst power generation is down by £3.9m million. The decrease in earnings is primarily due to expected lower volumes, which are in line with management expectations, and lower power prices, Pennon said.
Manchester
Pennon Group has also confirmed that negotiations are ongoing over the early end to the Greater Manchester Waste Disposal Authority contract – with Viridor anticipating compensation over likely termination of the deal (see letsrecycle.com).
Pennon Group, which also owns the South West Water utility has overall recorded a profit before tax of around £210 million in 2016/17, up by around 2% compared to the previous year
Chris Loughlin, Pennon Group chief executive said: “Pennon has delivered a strong performance in 2016/17 across its water and waste businesses. South West Water’s Return on Regulated Equity continues to lead the sector while Viridor is growing through its Energy Recovery Facility portfolio, delivering EBITDA of £107 million, ahead of our c.£100 million target.
“Across the Group we are investing for growth while driving efficiency to keep costs low for the benefit of our customers.”
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